Grading on a curve: Smartwatches in 2014

on August 14, 2014

I’ve just published a new report for my subscription clients on the topic of smartwatches. The report combines consumer research on demand drivers for smartphones, such as fitness tracking and the use of push notifications, with a review of the state of the products on offer from the major vendors. I thought for this week’s column I would share some of the high level findings with you. In short: the demand drivers for smartwatches are not strong at all and it will take a really transformative product to stimulate demand beyond the current niche levels. Let me explain.

Among the major functions smartwatches look to perform today, two stand out: fitness tracking and push notifications on the wrist. The major challenge for smartwatch vendors is neither of these is exactly a mass market proposition. My surveys indicate 80% of the US and UK populations has never used a fitness tracker at all, and, of those who have, roughly half have abandoned them. Only about 10% of the population in these two countries see enough value in fitness trackers to use them today and, if the past abandonment rate keeps up, that number may yet fall. Turning to push notifications, about three quarters of the smartphone population uses them, which sounds good. But digging deeper shows (a) only about half the US population uses a smartphone and (b) of those who use push notifications, many use them for a single app only (often text messaging) and many more use them for only two apps. I believe the sweet spot for a smartwatch majoring on push notifications is people who use them for three or more apps, and that’s only about a quarter of smartphone users, or about 15% of the US population as a whole. Even extending the research to possible future smartwatch functions such as payments doesn’t help very much. In our surveys, almost two thirds of the US population had never used mobile payments, and under 10% use them regularly.

As I started to think about this column over this past weekend, I was drawn to the comparison between the smartwatch market today and the smartphone market in 2007, and I visualized Steve Jobs’ iPhone Keynote slide with the leading smartphones of the day. Imagine my surprise when I woke up on Monday morning and saw Dan Frommer of Quartz had used that very image in an article on smartwatches. But I still think the comparison is apt, and not just for the reasons Frommer talks about. Yes, there is potential for a new entrant in the market to disrupt the existing players, but only one of the existing players in this market has built a business around smartwatches in the way Palm, RIM, Nokia and Motorola had around phones in 2007.

The real point here is that smartwatches today, like smartphones then, had a niche appeal. Smartphone penetration in the US was in single digits in 2007, and that reflected the fact most people hadn’t seen the need to buy one. Smartphones in the US were work-centric, focused on delivering email and a basic web browsing experience. Apps for anything beyond PIM (personal information management) were poor or non-existent and, as such, the vast majority of the general population saw no need for one. Those that needed one would likely be issued one by their employers, and a few hobbyists would buy one for personal use or because their employer didn’t see the need.

All that changed dramatically in 2007 when Apple introduced the iPhone and gave people a fundamentally different set of reasons to buy a smartphone. It now became a sort of pocket computer, good for all sorts of tasks beyond email and work. And of course over the next few years, we saw other phone makers adopt a similar approach, and Android-based devices eventually take majority share of the much expanded smartphone market. But it took a new entrant with a different conception of what a smartphone could be to take the market to a different level, and it’s quite possible the market would have continued its slow growth if the iPhone hadn’t come along.

If smartwatches are to succeed then, we need an existing player or a new entrant to do something similar to what the iPhone did to smartphones in 2007: that is, fundamentally reinvent the category so one of two things happens:

  • The experience built around the two key functions today – push notifications and fitness tracking – becomes so much better it stimulates demand where there is currently very little of it, or
  • One or more smartwatches reinvent the category in such a way they are seen completely differently, serve different functions and meet a real need consumers don’t even realize they have.

However, if I look at the smartwatches on offer today, and the response among the people who review such devices, I can’t escape the notion we’re selling ourselves short and kidding ourselves that the current crop of smartwatches is already very good. There are a number of major sites that do tech reviews and many of them do good work. I’ve chosen to use the Verge’s reviews to illustrate my point here, but other sites would likely provide similar results. The chart below shows review scores (out of 10) from the Verge for three product categories: smartwatches, smartphones and tablets:

Grading on a Curve - Verge scores

The first thing to look at is the highest scores in each category. Apple claims the top spots in tablets with scores of 9.3 for both its current tablets. In smartphones, the pack is a little tighter with several phones scoring 8 or higher, including the Nexus 5 at 8.0, and the LG G3, iPhone 5C, iPhone 5S and HTC One M8 all between 8.3 and 8.8. Now look at the smartwatch category, where the original Pebble and the Pebble Steel both score above 8. That puts them in the same range as the iPhone 5S, HTC One M8 and LG G3, and above the Samsung Galaxy S5, which scores 7.8 in the Verge’s reviews. If you have any experience with these devices, you may be asking yourself how on earth today’s smartwatches could be comparable to the best smartphones on the market.

But the answer is simple: we’re grading on a curve here. The bar has been set so low for smartwatches that a device as flawed as the Pebble gets a score as high as the iPhone 5C or the LG G3, even though the latter devices do a far better job of meeting needs in their category than the Pebble (or any other smartwatch) does in its category. If you really take a step back and look at what you’d want your ideal smartwatch to do, I think you’d include the following criteria:

  • Attractiveness – the watch has to look good on the wrist, as a more personal device than any other piece of technology, and it has to look good on a variety of wrists, not just larger men’s wrists. It should be stylish, and recognizable as a fashion accessory and not just a gadget.
  • Size – the smartwatch shouldn’t be overly bulky, fitting comfortably but also not looking out of place on a wrist. Again, it needs to meet this need for a variety of body types.
  • Display – the display should be high resolution, as our smartphone and tablet screens are, bright and easy to read indoors or outdoors, and always on, at least to some extent, for easy “glance-ability”.
  • Battery life – the battery should last for days, and ideally a week. Less than that means you have to frequently remove it. Any longer than a week (unless the battery life is truly watch-like) and you forget to charge it
  • Chargeability – speaking of charging, the watch needs to be easy to charge. In an ideal world, you’d charge it without taking it off, either wirelessly or via motion.
  • Functionality – the smartwatch needs to do its job well, whether it’s fitness-centric, notification-centric or serves some other function.
  • Useful interactions – a tiny wrist worn screen is not ideal for text input, to say the least. But the device should be interactive in a useful way, through voice, gestures, buttons or touch.

Measured against these criteria, the current crop of smartwatches does very poorly. I did my own ratings as part of my report and I ended up with scores which were barely above 50% across these seven categories. Unlike most reviewers, I don’t see the Pebble as the clear leader in this market – in fact, all the devices ended up clustered around a very small range of unimpressive scores. If we’re really honest with ourselves, we should expect much more of these devices before we embrace them. And unless they do more, we’re not likely to see them sell above current levels.

I come back to my sense that we’re in 2007 in smartphone terms (or 2010 in tablet terms, or 2001 in MP3 player terms). In each of those years, Apple entered the market with a new device which transformed the category and turned it from niche to mainstream in short order. In each case, existing devices were clunky, narrow in their appeal, performed poorly and failed to ignite consumer interest. Apple isn’t the only company that can do this – Sony arguably did it with the Walkman many years earlier and other companies have similarly reinvented other categories. But Apple is the one with the track record over the last 15 years or so, and I think that’s why everyone is so eagerly anticipating its entry into this market. But Apple faces the same challenges as any other company in this space: the technology fundamentally doesn’t seem to be able to deliver on the set of criteria I outlined above without serious compromises. Those watches which deliver better battery life tend to do it with clunky looking, low resolution screens. Those which have brighter screens tend to have quickly draining batteries. All of them are bulky and most are unattractive. Does Apple have the potential to somehow overcome these technical challenges, as it seemed to do with the iPhone in 2007? Or will it instead reinvent the category, taking a fundamentally different approach? Perhaps we’ll be surprised and Apple won’t even enter the smartwatch category directly at all, instead blazing a new trail. Whatever Apple ends up doing, I’m hoping it opens the eyes of the other vendors in the market to what’s possible, and helps them raise their game too. We can do much better.

My report, Smartwatches: Market Prospects, is available to subscription clients now, and is also available for sale to non-clients.